US AIRWAYS v. MCCUTCHEN
After James E. McCutchen suffered a serious injury in a car accident, a benefit plan administered by US Airways paid $66,866 to cover his medical expenses. The plan requires the beneficiary to pay back the medical expenses out of any amount recovered from third parties. Once McCutchen recovered over $100,000 from third parties in a separate suit, the plan demanded that McCutchen reimburse them for the full amount they paid out. McCutchen argued that US Airways did not take into account his legal fees, which reduced his recovery amount from third parties to less than the amount demanded. US Airways then filed suit for “appropriate equitable relief” under the Employment Retirement Security Income Act (ERISA). The district court ordered McCutchen to pay the full $66,866.
The U.S. Court of Appeals for the Third Circuit vacated the district court’s judgment, holding that ERISA is subject to equitable limitations. To determine appropriate equitable relief, the district court must take into account the distribution of the amount recovered from third parties between McCutchen and his attorneys.
Did the Third Circuit correctly hold that ERISA Section 502(a)(3) authorizes courts to use equitable principles to determine appropriate equitable relief?
Legal provision: ERISA
Maybe. Justice Elena Kagan, writing for a 5-4 majority, vacated the Third Circuit and remanded. The Supreme Court held that equitable limitations did not apply to the benefit plan as a whole because the plan is a valid contract and the parties are only demanding what they bargained for under that contract. The common fund doctrine, however, may provide relief because the benefit plan is silent on the allocation of attorney fees. The common fund doctrine allows a litigant to recover attorney fees from a fund that is created, increased, or protected by that litigant. Because the parties did not contract otherwise, the common fund doctrine provides the best indication of the parties' intent. The case was remanded for further proceedings consistent with this opinion.
Justice Antonin Scalia dissented, arguing that the majority should not have discussed the plan’s lack of a provision for attorney fees because it was not included in the question presented. Chief Justice John G. Roberts, Jr., Justice Clarence Thomas, and Justice Samuel A. Alito, Jr. joined in the dissent.
NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
US AIRWAYS, INC., in its capacity as fiduciary and plan administrator of the US AIRWAYS, INC. EMPLOYEE BENEFITS PLAN, PETITIONER v. JAMES E. McCUTCHEN et al.
on writ of certiorari to the united states court of appeals for the third circuit
[April 16, 2013]
Justice Kagan delivered the opinion of the Court.
Respondent James McCutchen participated in a health benefits plan that his employer, petitioner US Airways, established under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U. S. C. §1001 et seq. That plan obliged US Airways to pay any medical expenses McCutchen incurred as a result of a third party’s actions—for example, another person’s negligent driving. The plan in turn entitled US Airways to reimbursement if McCutchen later recovered money from the third party.
This Court has held that a health-plan administrator like US Airways may enforce such a reimbursement provision by filing suit under §502(a)(3) of ERISA, 88Stat. 891, 29 U. S. C. §1132(a)(3). See Sereboff v. Mid Atlantic Medical Services, Inc., 547 U. S. 356 (2006) . That section authorizes a civil action “to obtain . . . appropriate equitable relief . . . to enforce . . . the terms of the plan.” We here consider whether in that kind of suit, a plan participant like McCutchen may raise certain equitable defenses deriving from principles of unjust enrichment. In particular, we address one equitable doctrine limiting reimbursement to the amount of an insured’s “double recovery” and another requiring the party seeking reimbursement to pay a share of the attorney’s fees incurred in securing funds from the third party. We hold that neither of those equitable rules can override the clear terms of a plan. But we explain that the latter, usually called the common-fund doctrine, plays a role in interpreting US Airways’ plan because the plan is silent about allocating the costs of recovery.I
In January 2007, McCutchen suffered serious injuries when another driver lost control of her car and collided with McCutchen’s. At the time, McCutchen was an employee of US Airways and a participant in its self-funded health plan. The plan paid $66,866 in medical expenses arising from the accident on McCutchen’s behalf.
McCutchen retained attorneys, in exchange for a 40% contingency fee, to seek recovery of all his accident-related damages, estimated to exceed $1 million. The attorneys sued the driver responsible for the crash, but settled for only $10,000 because she had limited insurance coverage and the accident had killed or seriously injured three other people. Counsel also secured a payment from McCutchen’s own automobile insurer of $100,000, the maximum amount available under his policy. McCutchen thus received $110,000—and after deducting $44,000 for the lawyer’s fee, $66,000.
On learning of McCutchen’s recovery, US Airways demanded reimbursement of the $66,866 it had paid in medical expenses. In support of that claim, US Airways relied on the following statement in its summary plan description:
“If [US Airways] pays benefits for any claim you incur as the result of negligence, willful misconduct, or other actions of a third party, . . . [y]ou will be required to reimburse [US Airways] for amounts paid for claims out of any monies recovered from [the] third party, including, but not limited to, your own insurance company as the result of judgment, settlement, or otherwise.” App. 20. 1
McCutchen denied that US Airways was entitled to any reimbursement, but his attorneys placed $41,500 in an escrow account pending resolution of the dispute. That amount represented US Airways’ full claim minus a proportionate share of the promised attorney’s fees.
US Airways then filed this action under §502(a)(3), seeking “appropriate equitable relief” to enforce the plan’s reimbursement provision. The suit requested an equitable lien on $66,866—the $41,500 in the escrow account and $25,366 more in McCutchen’s possession. McCutchen countered by raising two defenses relevant here. First, he maintained that US Airways could not receive the relief it sought because he had recovered only a small portion of his total damages; absent over-recovery on his part, US Airways’ right to reimbursement did not kick in. Second, he contended that US Airways at least had to contribute its fair share to the costs he incurred to get his recovery; any reimbursement therefore had to be marked down by 40%, to cover the promised contingency fee. The District Court rejected both arguments, granting summary judgment to US Airways on the ground that the plan “clear[ly] and unambiguous[ly]” provided for full reimbursement of the medical expenses paid. App. to Pet. for Cert. 30a; see id., at 32a.
The Court of Appeals for the Third Circuit vacated the District Court’s order. The Third Circuit reasoned that in a suit for “appropriate equitable relief” under §502(a)(3), a court must apply any “equitable doctrines and defenses” that traditionally limited the relief requested. 663 F. 3d 671, 676 (CA3 2011). And here, the court continued, “ ‘the principle of unjust enrichment’ ” should “ ‘serve to limit the effectiveness’ ” of the plan’s reimbursement provision. See id., at 677 (quoting 4 G. Palmer, Law of Restitution §23.18, p. 472–473 (1978)). Full reimbursement, the Third Circuit thought, would “leav[e] [McCutchen] with less than full payment” for his medical bills; at the same time, it would provide a “windfall” to US Airways given its failure to “contribute to the cost of obtaining the third-party recovery.” 663 F. 3d, at 679. The Third Circuit then instructed the District Court to determine what amount, shy of the entire $66,866, would qualify as “appropriate equitable relief.” Ibid.
We granted certiorari, 567 U. S. ___ (2012), to resolve a circuit split on whether equitable defenses can so override an ERISA plan’s reimbursement provision. 2 We now vacate the Third Circuit’s decision.II
A health-plan administrator like US Airways may bring suit under §502(a)(3) for “appropriate equitable relief . . . to enforce . . . the terms of the plan.” 3 That provision, we have held, authorizes the kinds of relief “typically available in equity” in the days of “the divided bench,” before law and equity merged. Mertens v. Hewitt Associates, 508 U. S. 248, 256 (1993) (emphasis deleted).
In Sereboff v. Mid Atlantic Medical Services, we allowed a health-plan administrator to bring a suit just like this one under §502(a)(3). Mid Atlantic had paid medical expenses for the Sereboffs after they were injured in a car crash. When they settled a tort suit against the other driver, Mid Atlantic claimed a share of the proceeds, invoking the plan’s reimbursement clause. We held that Mid Atlantic’s action sought “equitable relief,” as §502(a)(3) requires. See 547 U. S., at 369. The “nature of the recovery” requested was equitable because Mid Atlantic claimed “specifically identifiable funds” within the Sereboffs’ control—that is, a portion of the settlement they had gotten. Id., at 362–363 (internal quotation marks omitted). And the “basis for [the] claim” was equitable too, because Mid Atlantic relied on “ ‘the familiar rul[e] of equity that a contract to convey a specific object’ ” not yet acquired “ ‘create[s] a lien’ ” on that object as soon as “ ‘the contractor . . . gets a title to the thing.’ ” Id., at 363–364 (quoting Barnes v. Alexander, 232 U. S. 117, 121 (1914) ). Mid Atlantic’s claim for reimbursement, we determined, was the modern-day equivalent of an action in equity to enforce such a contract-based lien—called an “equitable lien by agreement.” 547 U. S., at 364–365 (internal quotation marks omitted). Accordingly, Mid Atlantic could bring an action under §502(a)(3) seeking the funds that its beneficiaries had promised to turn over. And here, as all parties agree, US Airways can do the same thing.
The question in this case concerns the role that equitable defenses alleging unjust enrichment can play in such a suit. As earlier noted, the Third Circuit held that “the principle of unjust enrichment” overrides US Airways’ reimbursement clause if and when they come into conflict. 663 F. 3d, at 677. McCutchen offers a more refined version of that view, alleging that two specific equitable doctrines meant to “prevent unjust enrichment” defeat the reimbursement provision. Brief for Respondents i. First, he contends that in equity, an insurer in US Airways’ position could recoup no more than an insured’s “double recovery”—the amount the insured has received from a third party to compensate for the same loss the insurance covered. That rule would limit US Airways’ reimbursement to the share of McCutchen’s settlements paying for medical expenses; McCutchen would keep the rest (e.g., damages for loss of future earnings or pain and suffering), even though the plan gives US Airways first claim on the whole third-party recovery. Second, McCutchen claims that in equity the common-fund doctrine would have operated to reduce any award to US Airways. Under that rule, “a litigant or a lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney’s fee from the fund as a whole.” Boeing Co. v. Van Gemert, 444 U. S. 472, 478 (1980) . McCutchen urges that this doctrine, which is designed to prevent freeloading, enables him to pass on a share of his lawyer’s fees to US Airways, no matter what the plan provides. 4
We rejected a similar claim in Sereboff, though without altogether foreclosing McCutchen’s position. The Sereboffs argued, among other things, that the lower courts erred in enforcing Mid Atlantic’s reimbursement clause “without imposing various limitations” that would “apply to truly equitable relief grounded in principles of subrogation.” 5 547 U. S., at 368 (internal quotation marks omitted). In particular, the Sereboffs contended that a variant of the double-recovery rule, called the make-whole doctrine, trumped the plan’s terms. We rebuffed that argument, explaining that the Sereboffs were improperly mixing and matching rules from different equitable boxes. The Sereboffs asserted a “parcel of equitable defenses” available when an out-of-pocket insurer brought a “freestanding action for equitable subrogation,” not founded on a contract, to succeed to an insured’s judgment against a third party. Ibid. But Mid Atlantic’s reimbursement claim was “considered equitable,” we replied, because it sought to enforce a “ lien based on agreement ”—not a lien imposed independent of contract by virtue of equitable subrogation. 6 Ibid. (internal quotation marks omitted). In light of that fact, we viewed the Sereboffs’ equitable defenses—which again, closely resemble McCutchen’s—as “beside the point.” Ibid. And yet, we left a narrow opening for future litigants in the Sereboffs’ position to make a like claim. In a footnote, we observed that the Sereboffs had forfeited a “distinct assertion” that the contract-based relief Mid Atlantic requested, although “equitable,” was not “appropriate” under §502(a)(3) because “it contravened principles like the make-whole doctrine.” Id., at 368–369 n. 2. Enter McCutchen, to make that basic argument.
In the end, however, Sereboff’s logic dooms McCutchen’s effort. US Airways, like Mid Atlantic, is seeking to enforce the modern-day equivalent of an “equitable lien by agreement.” And that kind of lien—as its name announces—both arises from and serves to carry out a contract’s provisions. See id., at 363–364; 4 S. Symons, Pomeroy’s Equity Jurisprudence §1234, p. 695 (5th ed. 1941). So enforcing the lien means holding the parties to their mutual promises. See, e.g., Barnes, 232 U. S., at 121; Walker v. Brown, 165 U. S. 654, 664 (1897) . Conversely, it means declining to apply rules—even if they would be “equitable” in a contract’s absence—at odds with the parties’ expressed commitments. McCutchen therefore cannot rely on theories of unjust enrichment to defeat US Airways’ appeal to the plan’s clear terms. Those principles, as we said in Sereboff, are “beside the point” when parties demand what they bargained for in a valid agreement. See Restatement (Third) of Restitution and Unjust Enrichment §2(2), p. 15 (2010) (“A valid contract defines the obligations of the parties as to matters within its scope, displacing to that extent any inquiry into unjust enrichment”). In those circumstances, hewing to the parties’ exchange yields “appropriate” as well as “equitable” relief.
We have found nothing to the contrary in the historic practice of equity courts. McCutchen offers us a slew of cases in which those courts applied the double-recovery or common-fund rule to limit insurers’ efforts to recoup funds from their beneficiaries’ tort judgments. See Brief for Respondents 21–25. But his citations are not on point. In some of McCutchen’s cases, courts apparently applied equitable doctrines in the absence of any relevant contract provision. See, e.g., Washtenaw Mut. Fire Ins. Co. v. Budd, 208 Mich. 483, 486–487, 175 N. W. 231, 232 (1919); Fire Assn. of Philadelphia v. Wells, 84 N. J. Eq. 484, 487, 94 A. 619, 621 (1915). In others, courts found those rules to comport with the applicable contract term. For example, in Svea Assurance Co. v. Packham, 92 Md. 464, 48 A. 359 (1901)—the case McCutchen calls his best, see Tr. of Oral Arg. 47–48—the court viewed the double-recovery rule as according with “the intention” of the contracting parties; “[b]road as [the] language is,” the court explained, the agreement “cannot be construed to” give the insurer any greater recovery. 92 Md., at 478, 48 A., at 362; see also Knaffl v. Knoxville Banking & Trust Co., 133 Tenn. 655, 661, 182 S. W. 232, 233 (1916); Camden Fire Ins. Assn. v. Prezioso, 93 N. J. Eq. 318, 319–320, 116 A. 694, 694 (Ch. Div. 1922). But in none of these cases—nor in any other we can find—did an equity court apply the double-recovery or common-fund rule to override a plain contract term. That is, in none did an equity court do what McCutchen asks of us.
Nevertheless, the United States, appearing as amicus curiae, claims that the common-fund rule has a special capacity to trump a conflicting contract. The Government begins its brief foursquare with our (and Sereboff’s) analysis: In a suit like this one, to enforce an equitable lien by agreement, “the agreement, not general restitutionary principles of unjust enrichment, provides the measure of relief due.” Brief for United States 6. Because that is so, the Government (naturally enough) concludes, McCutchen cannot invoke the double-recovery rule to defeat the plan. But then the Government takes an unexpected turn. “When it comes to the costs incurred” by a beneficiary to obtain money from a third party, “the terms of the plan do not control.” Id., at 21. An equity court, the Government contends, has “inherent authority” to apportion litigation costs in accord with the “longstanding equitable common-fund doctrine,” even if that conflicts with the parties’ contract. Id., at 22.
But if the agreement governs, the agreement governs: The reasons we have given (and the Government mostly accepts) for looking to the contract’s terms do not permit an attorney’s-fees exception. We have no doubt that the common-fund doctrine has deep roots in equity. See Sprague v. Ticonic Nat. Bank, 307 U. S. 161, 164 (1939) (tracing equity courts’ authority over fees to the First Judiciary Act). Those roots, however, are set in the soil of unjust enrichment: To allow “others to obtain full benefit from the plaintiff’s efforts without contributing . . . to the litigation expenses,” we have often noted, “would be to enrich the others unjustly at the plaintiff’s expense.” Mills v. Electric Auto-Lite Co., 396 U. S. 375, 392 (1970) ; see Boeing, 444 U. S., at 478; Trustees v. Greenough, 105 U. S. 527, 532 (1882) ; supra, at 6–7 and n. 4. And as we have just explained, principles of unjust enrichment give way when a court enforces an equitable lien by agreement. See supra, at 8–9. The agreement itself becomes the measure of the parties’ equities; so if a contract abrogates the common-fund doctrine, the insurer is not unjustly enriched by claiming the benefit of its bargain. That is why the Government, like McCutchen, fails to produce a single case in which an equity court applied the common-fund rule (any more than the double-recovery rule) when a contract provided to the contrary. Even in equity, when a party sought to enforce a lien by agreement, all provisions of that agreement controlled. So too, then, in a suit like this one.
The result we reach, based on the historical analysis our prior cases prescribe, fits lock and key with ERISA’s focus on what a plan provides. The section under which this suit is brought “does not, after all, authorize ‘appropriate equitable relief’ at large,” Mertens, 508 U. S., at 253 (quoting §1132(a)(3)); rather, it countenances only such relief as will enforce “the terms of the plan” or the statute, §1132(a)(3) (emphasis added). That limitation reflects ERISA’s principal function: to “protect contractually defined benefits.” Massachusetts Mut. Life Ins. Co. v. Russell, 473 U. S. 134, 148 (1985) . The statutory scheme, we have often noted, “is built around reliance on the face of written plan documents.” Curtiss-Wright Corp. v. Schoonejongen, 514 U. S. 73, 83 (1995) . “Every employee benefit plan shall be established and maintained pursuant to a written instrument,” §1102(a)(1), and an administrator must act “in accordance with the documents and instruments governing the plan” insofar as they accord with the statute, §1104(a)(1)(D). The plan, in short, is at the center of ERISA. And precluding McCutchen’s equitable defenses from overriding plain contract terms helps it to remain there.III
Yet McCutchen’s arguments are not all for naught. If the equitable rules he describes cannot trump a reimbursement provision, they still might aid in properly construing it. And for US Airways’ plan, the common-fund doctrine (though not the double-recovery rule) serves that function. The plan is silent on the allocation of attorney’s fees, and in those circumstances, the common-fund doctrine provides the appropriate default. In other words, if US Airways wished to depart from the well-established common-fund rule, it had to draft its contract to say so—and here it did not. 7
Ordinary principles of contract interpretation point toward this conclusion. Courts construe ERISA plans, as they do other contracts, by “looking to the terms of the plan” as well as to “other manifestations of the parties’ intent.” Firestone Tire & Rubber Co. v. Bruch, 489 U. S. 101, 113 (1989) . The words of a plan may speak clearly, but they may also leave gaps. And so a court must often “look outside the plan’s written language” to decide what an agreement means. CIGNA Corp. v. Amara, 563 U. S. ___, ___ (slip op., at 13); see Curtiss-Wright, 514 U. S., at 80–81. In undertaking that task, a court properly takes account of background legal rules—the doctrines that typically or traditionally have governed a given situation when no agreement states otherwise. See Wal-Mart Stores, Inc. Assoc. Health & Welfare Plan v. Wells, 213 F. 3d 398, 402 (CA7 2000) (Posner, J.) (“[C]ontracts . . . are enacted against a background of common-sense understandings and legal principles that the parties may not have bothered to incorporate expressly but that operate as default rules to govern in the absence of a clear expression of the parties’ [contrary] intent”); 11 R. Lord, Williston on Contracts §31:7 (4th ed. 2012); Restatement (Second) of Contracts §221 (1979). Indeed, ignoring those rules is likely to frustrate the parties’ intent and produce perverse consequences.
The reimbursement provision at issue here precludes looking to the double-recovery rule in this manner. Both the contract term and the equitable principle address the same problem: how to apportion, as between an insurer and a beneficiary, a third party’s payment to recompense an injury. But the allocation formulas they prescribe differ markedly. According to the plan, US Airways has first claim on the entire recovery—as the plan description states, on “any monies recovered from [the] third party”; McCutchen receives only whatever is left over (if anything). See supra, at 3. By contrast, the double-recovery rule would give McCutchen first dibs on the portion of the recovery compensating for losses that the plan did not cover (e.g., future earnings or pain and suffering); US Airways’ claim would attach only to the share of the recovery for medical expenses. See supra, at 6–7. The express contract term, in short, contradicts the background equitable rule; and where that is so, for all the reasons we have given, the agreement must govern.
By contrast, the plan provision here leaves space for the common-fund rule to operate. That equitable doctrine, as earlier noted, addresses not how to allocate a third-party recovery, but instead how to pay for the costs of obtaining it. See supra, at 7. And the contract, for its part, says nothing specific about that issue. The District Court below thus erred when it found that the plan clearly repudiated the common-fund rule. See supra, at 4. To be sure, the plan’s allocation formula—first claim on the recovery goes to US Airways—might operate on every dollar received from a third party, even those covering the beneficiary’s litigation costs. But alternatively, that formula could apply to only the true recovery, after the costs of obtaining it are deducted. (Consider, for comparative purposes, how an income tax is levied on net, not gross, receipts.) See Dawson, Lawyers and Involuntary Clients: Attorney Fees From Funds, 87 Harv. L. Rev. 1597, 1606–1607 (1974) (“[T]he claim for legal services is a first charge on the fund and must be satisfied before any distribution occurs”). The plan’s terms fail to select between these two alternatives: whether the recovery to which US Airways has first claim is every cent the third party paid or, instead, the money the beneficiary took away.
Given that contractual gap, the common-fund doctrine provides the best indication of the parties’ intent. No one can doubt that the common-fund rule would govern here in the absence of a contrary agreement. This Court has “recognized consistently” that someone “who recovers a common fund for the benefit of persons other than himself” is due “a reasonable attorney’s fee from the fund as whole.” Boeing Co., 444 U. S., at 478. We have understood that rule as “reflect[ing] the traditional practice in courts of equity.” Ibid.; see Sprague, 307 U. S., at 164–166; supra, at 11. And we have applied it in a wide range of circumstances as part of our inherent authority. See Boeing Co., 444 U. S., at 474, 478; Hall v. Cole, 412 U. S. 1 –7 and n. 7 (1973); Mills, 396 U. S., at 389–390, 392; Sprague, 307 U. S., at 166; Central Railroad & Banking Co. of Ga. v. Pettus, 113 U. S. 116 –127 (1885); Greenough, 105 U. S., at 528, 531–533. State courts have done the same; the “overwhelming majority” routinely use the common-fund rule to allocate the costs of third-party recoveries between insurers and beneficiaries. 8A Appleman §4903.85, at 335 (1981); see Annot., 2 A. L. R. 3d 1441, §§2–3 (1965 and Supp. 2012). A party would not typically expect or intend a plan saying nothing about attorney’s fees to abrogate so strong and uniform a background rule. And that means a court should be loath to read such a plan in that way. 8
The rationale for the common-fund rule reinforces that conclusion. Third-party recoveries do not often come free: To get one, an insured must incur lawyer’s fees and expenses. Without cost sharing, the insurer free rides on its beneficiary’s efforts—taking the fruits while contributing nothing to the labor. Odder still, in some cases—indeed, in this case—the beneficiary is made worse off by pursuing a third party. Recall that McCutchen spent $44,000 (representing a 40% contingency fee) to get $110,000, leaving him with a real recovery of $66,000. But US Airways claimed $66,866 in medical expenses. That would put McCutchen $866 in the hole; in effect, he would pay for the privilege of serving as US Airways’ collection agent. We think McCutchen would not have foreseen that result when he signed on to the plan. And we doubt if even US Airways should want it. When the next McCutchen comes along, he is not likely to relieve US Airways of the costs of recovery. See Blackburn v. Sundstrand Corp., 115 F. 3d 493, 496 (CA7 1997) (Easterbrook, J.) (“[I]f . . . injured persons could not charge legal costs against recoveries, people like [McCutchen] would in the future have every reason” to make different judgments about bringing suit, “throwing on plans the burden and expense of collection”). The prospect of generating those strange results again militates against reading a general reimbursement provision—like the one here—for more than it is worth. Only if US Airways’ plan expressly addressed the costs of recovery would it alter the common-fund doctrine.IV
Our holding today has two parts, one favoring US Airways, the other McCutchen. First, in an action brought under §502(a)(3) based on an equitable lien by agreement, the terms of the ERISA plan govern. Neither general principles of unjust enrichment nor specific doctrines reflecting those principles—such as the double-recovery or common-fund rules—can override the applicable contract. We therefore reject the Third Circuit’s decision. But second, the common-fund rule informs interpretation of US Airways’ reimbursement provision. Because that term does not advert to the costs of recovery, it is properly read to retain the common-fund doctrine. We therefore also disagree with the District Court’s decision. In light of these rulings, we vacate the judgment below and remand the case for further proceedings consistent with this opinion.
It is so ordered.
1 We have made clear that the statements in a summary plan description “communicat[e] with beneficiaries about the plan, but . . . donot themselves constitute the terms of the plan.” CIGNA Corp. v. Amara, 563 U. S. ___, ___ (2011) (slip op., at 15). Nonetheless, the parties litigated this case, and both lower courts decided it, based solely on the language quoted above. See 663 F. 3d 671, 673 (CA3 2011); App. to Pet. for Cert. 26a. Only in this Court, in response to a request from the Solicitor General, did the plan itself come to light. See Letter from Matthew W. H. Wessler to William K. Suter, Clerk of Court (Nov. 19, 2012) (available in Clerk of Court’s case file). That is too late to affect what happens here: Because everyone in this case has treated the language from the summary description as though it came from the plan, we do so as well.
2 Compare 663 F. 3d 671, 673 (CA3 2011) (case below) (holding that equitable doctrines can trump a plan’s terms); CGI Technologies & Solutions Inc. v. Rose, 683 F. 3d 1113, 1124 (CA9 2012) (same), with Zurich Am. Ins. Co. v. O’Hara, 604 F. 3d 1232, 1237 (CA11 2010) (holding that they cannot do so); Administrative Comm. of Wal-Mart Stores, Inc. v. Shank, 500 F. 3d 834, 838 (CA8 2007) (same); Moore v. CapitalCare, Inc., 461 F. 3d 1, 9–10 and n. 10 (CADC 2006) (same); Bombadier Aerospace Employee Welfare Benefits Plan v. Ferror, Poirot, & Wansbrough, 354 F. 3d 348, 362 (CA5 2003) (same); Administrative Comm. of Wal-Mart Stores, Inc. v. Varco, 338 F. 3d 680, 692 (CA7 2003) (same).
3 Sans ellipses, §502(a)(3) provides that a plan administrator may bring a civil action “(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” 29 U. S. C. §1132(a)(3).
4 Both our prior cases and secondary sources confirm McCutchen’s characterization of the common-fund and double-recovery rules as deriving primarily from principles of unjust enrichment. See Boeing, 444 U. S., at 478 (“The [common-fund] doctrine rests on the perception that persons who obtain the benefit of a lawsuit without contributing to its cost are unjustly enriched”); Mills v. Electric Auto-Lite Co., 396 U. S. 375, 392 (1970) (similar); 1 D. Dobbs, Law of Remedies §3.10(2), p. 395 (2d ed. 1993) (hereinafter Dobbs) (similar); 4 G. Palmer, Law of Restitution §23.16(b), p. 444 (“[T]he injured person is unjustly enriched” only when he has received “in excess of full compensation” from two sources “for the same loss”); 16 G. Couch, Cyclopedia of Insurance Law §61:18 (2d ed. 1983) (similar); 8B J. Appleman & J. Appleman, Insurance Law and Practice §4941, p. 11 (Cum. Supp. 2012) (hereinafter Appleman) (similar).
5 “Subrogation simply means substitution of one person for another; that is, one person is allowed to stand in the shoes of another and assert that person’s rights against” a third party. 1 Dobbs §4.3(4), at 604; see 8B Appleman §4941, at 11 (“ ‘Subrogation’ involves the substitution of the insurer . . . to the rights of the insured”).
6 The Sereboff Court’s analysis concerned only subrogation actions based on equitable principles independent of any agreement. A subrogation action may also be founded on a contract incorporating those principles. See 1 Dobbs §4.3(4), at 604. US Airways suggested at oral argument that McCutchen’s case would “ge[t] a lot stronger” if the plan here spoke only of subrogation, without separately granting a right of reimbursement. Tr. of Oral Arg. 18. We need not consider that question because US Airways seeks to enforce a reimbursement provision, of the same kind we considered in Sereboff.
7 The dissent faults us for addressing this issue, but we think it adequately preserved and presented. The language the dissent highlights in McCutchen’s brief in opposition, indicating that the plan clearly abrogates the common-fund doctrine, comes from his description of US Airways’ claim in the District Court. See post, at 1 (opinion of Scalia, J.); Brief in Opposition 5. McCutchen’s argument in that court urged the very position we adopt—that the common-fund doctrine applies because the plan is silent. See App. to Pet. for Cert. 30a; Defendants’ Memorandum in Opposition to Plaintiff’s Motion for Summary Judgment in No. 2:08–cv–1593 (WD Pa., Dec. 4, 2011), Doc. 33, pp. 12–13 (“If [US Airways] wanted to exclude a deduction for attorney fees, it easily could have so expressed”). To be sure, McCutchen shifted ground on appeal because the District Court ruled that Third Circuit precedent foreclosed his contract-based argument, see App. to Pet. for Cert. 31a; the Court of Appeals’ decision then put front-and-center his alternative contention that the common-fund rule trumps a contract. But both claims have the same basis (the nature and function of the common-fund doctrine), which the parties have disputed throughout this litigation. And similarly, the question we decide here is included in the question presented. The principal clause of that question asks whether a court may use “equitable principles to rewrite contractual language.” Pet. for Cert. i. We answer “not rewrite, but inform”—a reply well within the question’s scope.
8 For that reason, almost every state court that has confronted the issue has done what we do here: apply the common-fund doctrine inthe face of a contract giving an insurer a general right to recoup funds from an insured’s third-party recovery, without specifically addressing attorney’s fees. See, e.g., Ex parte State Farm Mut. Auto. Ins. Co., 105 So. 3d 1199, 1212 and n. 6 (Ala. 2012); York Ins. Group of Me. v. Van Hall, 1997 ME 230, ¶8, 704 A. 2d 366, 369; Barreca v. Cobb, 95–1651, pp. 2–3, 5 and n. 5 (La. 2/28/96), 668 So. 2d 1129, 1131–1132 and n. 5; Federal Kemper Ins. Co. v. Arnold, 183 W. Va. 31, 33–34, 393 S. E. 2d 669, 671–672 (1990); State Farm Mut. Auto. Ins. Co. v. Clinton, 267 Ore. 653, 661–662, 518 P. 2d 645, 649 (1974); Northern Buckeye Educ. Council Group Health Benefits Plan v. Lawson, 154 Ohio App. 3d 659, 669, 2003–Ohio–5196, 798 N. E. 2d 667, 675; Lancer Corp. v. Murillo, 909 S. W. 2d 122, 126–127 and n. 2 (Tex. App. 1995); Breslin v. Liberty Mut. Ins. Co., 134 N. J. Super. 357, 362, 341 A. 2d 342, 344 (App. Div. 1975); Hospital Service Corp. of R. I. v. Pennsylvania Ins. Co., 101 R. I. 708, 710, 716, 227 A. 2d 105, 108, 111 (1967); National Union Fire Ins. Co. v. Grimes, 278 Minn. 45, 46–47, 51, 153 N. W. 2d 152, 153, 156 (1967); Foremost Life Ins. Co. v. Waters, 125 Mich. App. 799, 801, 805, 337 N. W. 2d 29, 30, 32 (1983) (citing Foremost Life Ins. Co. v. Waters, 88 Mich. App. 599, 602, 278 N. W. 2d 688, 689 (1979)); Lee v. State Farm Mut. Auto. Ins. Co., 57 Cal. App. 3d 458, 462, 469, 129 Cal. Rptr. 271, 273–274, 278 (1976).
SUPREME COURT OF THE UNITED STATES
US AIRWAYS, INC., in its capacity as fiduciary and plan administrator of the US AIRWAYS, INC. EMPLOYEE BENEFITS PLAN, PETITIONER v. JAMES E. McCUTCHEN et al.
on writ of certiorari to the united states court of appeals for the third circuit
[April 16, 2013]
Justice Scalia, with whom The Chief Justice, Jus-tice Thomas, and Justice Alito join, dissenting.
I agree with Parts I and II of the Court’s opinion, which conclude that equity cannot override the plain terms of the contract.
The Court goes on in Parts III and IV, however, to hold that the terms are not plain and to apply the “common-fund” doctrine to fill that “contractual gap,” ante, at 14. The problem with this is that we granted certiorari on a question that presumed the contract’s terms were unambiguous—namely, “where the plan’s terms give it an absolute right to full reimbursement.” Pet. for Cert. i. Re-spondents interpreted “full reimbursement” to mean what it plainly says—reimbursement of all the funds the Plan had expended. In their brief in opposition to the petition they conceded that, under the contract, “a beneficiary is required to reimburse the Plan for any amounts it has paid out of any monies the beneficiary recovers from a third-party, without any contribution to attorney’s fees and expenses.” Brief in Opposition 5 (emphasis added). All the parties, as well as the Solicitor General, have treated that concession as valid. See Brief for Petitioner 18, and n. 6; Brief for Respondents 29; Brief for United States as Amicus Curiae 21. The Court thus has no business deploying against petitioner an argument that was neither preserved, see Baldwin v. Reese, 541 U. S. 27, 34 (2004) , nor fairly included within the question presented, see Yee v. Escondido, 503 U. S. 519, 535 (1992) .
I would reverse the judgment of the Third Circuit.
ORAL ARGUMENT OF NEAL KUMAR KATYAL ON BEHALF OF THE PETITIONER
Chief Justice John G. Roberts: We'll hear argument this morning in Case 11-1285, US Airways v. McCutchen.
Neal Kumar Katyal: Thank you, Mr. Chief Justice, and may it please the Court:
ERISA permits plan fiduciaries to seek appropriate equitable relief to enforce the terms of the plan.
Six years ago, this Court, in Sereboff, concluded that reimbursement actions by ERISA plans, such as the one at issue here, seek equitable liens by agreement.
And because the plan's claim here is one for an equitable lien by agreement, that means one person with equitable defenses, those derived from unjustment enrichment, offer no help to Respondents.
Justice Sonia Sotomayor: Mr. Katyal, if you go to equity, why aren't you bound by equity?
Neal Kumar Katyal: We certainly are, Justice Sotomayor, bound by equity.
Our contention is not that once you say the magic words “ equitable lien by agreement ”, that somehow transforms into a “ we win ” as plaintiffs.
Justice Sonia Sotomayor: Well, but that's exactly what your bottom line is, which is, you have someone else do the work for you, and you don't pay them.
Neal Kumar Katyal: Quite to the contrary, Justice Sotomayor, our position is that the rules of equity bind equitable liens by agreement just as they bind anything else.
We're not trying to say that the equity doesn't apply--
Justice Sonia Sotomayor: So why does your lien have priority to the attorney's lien that is normally created at the commencement of the litigation?
Why is the attorney bound by the agreement you signed with the beneficiary?
Neal Kumar Katyal: --So, our position is that the attorney doesn't -- there is no lien created with the attorney; that once Mr. Sereboff signed -- entered into an agreement with US Air, that agreement said -- provided for 100 percent reimbursement rights.
And there is no -- essentially, what happened is Mr. Sereboff -- Mr. -- Mr. McCutchen double-promised his money.
He promised it first to -- first to the US Airways plan, and then he promised it to -- to his attorneys.
And that's a problem that he might have with his attorneys, although, as I understand the facts here, maybe that debt has been forgiven, but it is not something that creates an independent lien on the money that's at issue here.
That is, the rules in equity say that it is the agreement that controls -- when we're talking about an un -- when we're talking about an equitable lien by agreement--
Justice Ruth Bader Ginsburg: With Sereboff, that you -- you referred to, that -- that certainly describes the lien you rely on, but there's a footnote toward the end that leaves open the make-whole doctrine and, I assume, also the common fund doctrine.
So -- so it's -- it's an open question.
Neal Kumar Katyal: --Right.
So our position is not that Sereboff's letter controls this case.
We do think the reasoning of Sereboff essentially does decide the question, because what Sereboff said, Justice Ginsburg -- and this is at page 368 of the opinion in the text -- it said -- the Sereboffs had argued the make-whole doctrine.
And the -- in response, what this Court said is, quote,
"Mid Atlantic's claim is not considered equitable because it is a subrogation claim. "
"Mid Atlantic's action qualifies as an equitable remedy because it is indistinguishable from an action to enforce an equitable lien established by agreement of the sort epitomized by our decision in Barnes. "
Mid Atlantic need not characterize this action as a freestanding action for equitable subrogation.
Accordingly, the parcel of equitable defenses the Sereboffs claim accompany any such action are beside the point.
“ Beside the point ”.
And our position is once the Court has decided that the type of action that is at issue here is an equitable lien by agreement, the relevant doctrine -- and this is further answer to you, Justice Sotomayor -- that the Court is to look to is how are equitable liens by agreement evaluated in equity.
And those rules in equity say that, again, the general rules of equity apply in government; but, the one place, the one set of defenses that aren't governed, are those that sound an unjust enrichment.
Justice Anthony Kennedy: I -- I recognize that we're talking about a matter of Federal law here.
What about the law of most of the States?
Suppose there's an agreement with an insurer and an insured that says the insured gets 100 percent of the proceeds.
I would think that the law of most States gives a superior lien to the attorney for the contingent fee, notwithstanding the agreement.
I'm not sure of that.
It's just an assumption.
Neal Kumar Katyal: That is true in some subrogation States.
However, even with respect to that, when you have -- as long as it's not abrogated by statute or something like that.
But if you simply have an agreement by an insured and it provides for 100 percent reimbursement and abrogation of the common fund, even there, Justice Kennedy, the agreement is enforced.
So State Farm v. Clinton, which is a case cited in our brief, as long as -- as well as the Dobbs case and other decisions -- the Arkansas Supreme Court in 1969, the Arkansas court in 1931 -- have all said that if you have an insurance agreement that abrogates the common fund doctrine, that that agreement is enforced.
And, here, of course, we're dealing--
Justice Ruth Bader Ginsburg: Where is that abrogation -- where is that abrogation in this -- not the plan description, but the plan itself -- what clear language in the plan bars the--
Neal Kumar Katyal: --Justice Ginsburg, the district court at pages 30A to 32A of the petition appendix, had two pages that found the agreement clear and unambiguous with respect to abrogation of the common fund doctrine.
And the plan itself is found at Joint Appendix page 20.
That finding by the district court was never appealed to the Third Circuit, it was not appealed to this Court, and, indeed, the brief in opposition conceded this issue.
Justice Ruth Bader Ginsburg: --But that--
Justice Anthony Kennedy: That -- that's the summary of the plan that's at 820.
That's not the plan--
Neal Kumar Katyal: Yes.
The summary plan description is at page--
Justice Ruth Bader Ginsburg: --I'm asking about the plan itself because the plan controls if there's a discrepancy.
Neal Kumar Katyal: --Exactly.
And so the plan itself was submitted, I believe, a few days ago.
The Respondents have now made an issue of it.
Justice Ruth Bader Ginsburg: And I -- and I don't -- you -- you make a distinction between reimbursement clause and the subrogation clause.
And this -- as far as I can tell from the plan, there is no reimbursement clause.
The only one that's there is labeled “ subrogation ”.
And I looked at what's in the plan, and I don't see language that clearly abrogates the common fund.
Neal Kumar Katyal: Your Honor, I suppose that -- that they could have made this an issue when they appealed the district court's finding on this.
And, indeed, there was discovery--
Justice Anthony Kennedy: --Well, I mean, you -- you want us to decide a case without looking at the plan?
I have before me the same language that I believe Justice Ginsburg is looking at, and I think she's quite correct.
The word “ abrogation ”, of course, is not used, but neither is the concept.
Justice Antonin Scalia: I didn't think we took this case to review the plan.
Is -- is that what the Supreme Court took the case for, to say what this particular individual plan said?
Neal Kumar Katyal: --Absolutely not, Justice Scalia.
Justice Antonin Scalia: Had that -- had that point been raised, we would not have taken the case.
Neal Kumar Katyal: And much to the -- and much to the contrary, Justice Scalia, exactly, this is the way that they framed the brief in opposition.
The question presented is this,
"whether a seriously injured ERISA beneficiary must reimburse his ERISA plan for 100 percent of his medical expenses simply because the plan language so provides. "
Justice Anthony Kennedy: Well, simply because of plan language.
I mean, obviously, we have to look at the plan language to see what the -- you're -- you're relying on the plan language.
And you cite the summary, but you don't cite the main plan.
Neal Kumar Katyal: Two things, Justice Kennedy.
First, that brief in opposition goes on to say that that plan was clear with respect to the common fund doctrine and others at page 5.
But, second, if you're concerned--
Justice Sonia Sotomayor: Counsel, are you conceding--
Justice Antonin Scalia: I'm sorry.
Justice Sonia Sotomayor: --the plan doesn't say it?
Justice Antonin Scalia: --Excuse me.
Neal Kumar Katyal: --The second point -- the second point is even if you are concerned about any discrepancy, point -- 4.2 of the actual plan itself, and this is page 22 of the PDF that was submitted by -- lodged by my friends on the other side a few days ago, has essentially an anti-Amara clause in it.
It says that the benefits that are provided under the plan are those put forth in the summary plan description.
So there is no discrepancy between the SPD in the plan in this case, unlike in Amara where there very well was a discrepancy.
Justice Sonia Sotomayor: I'm sorry, the phrase that you just read says that the benefits are the same.
It doesn't say that the reimbursement and subrogation language are the same.
So go back to Justice Ginsburg's question, and point out in the plan what words you're relying upon.
Not the summary, but the plan.
Neal Kumar Katyal: --So the plan has in 4.7 two things.
It has the plan -- quote,
"The plan shall have the right to recover from any participant the amount of any benefits paid by this plan for expenses which were recovered from or paid by a source other than this plan. "
And then later, in 4.6, it says participants are -- quote,
"are obligated to avoid doing anything that would prejudice the plan's right of recovery. "
So I don't think that there is any discrepancy, Justice Sotomayor.
And to the extent that this Court were concerned about it, there were 4 years for them to have made this an issue, but this is just about as procedurally barred as -- as anything--
Justice Stephen G. Breyer: So if I were -- if I were Joe Smith, and a plan -- the plan pays me 100 -- I have medical expenses of $100,000.
And, actually, the -- the -- there was a driver who caused this problem.
And later, I collect $100,000, but I have to pay 50,000 to get the 100,000.
So I am left with $50,000 net, because I had to pay my lawyers, I had to pay expert witnesses.
There were a lot of different things I had to pay.
I'm left with $50,000 now.
So in comes the plan and says, we want 100,000.
I say, what?
Then I look at the language.
The language allows them to get back expenses which were recovered from the third-party.
I didn't recover 100,000 from the third-party.
I recovered 50,000 from the third-party, because it cost me 50 to get the 100.
Now, if I were a judge and listening to that, I'd say, assuming they wanted a reasonable interpretation of this language, sounds pretty reasonable to me.
Neal Kumar Katyal: --All right.
And, Justice Breyer, if you were the district court judge in this case, I suppose you could have reached that result.
The district court here--
Justice Stephen G. Breyer: The -- here, since nobody had the plan.
Neal Kumar Katyal: --Well, they -- they had the summary plan description, and they did not make an issue.
But they had all sorts of discovery requests, but never made a request for that--
Justice Stephen G. Breyer: All right.
But, I mean, wouldn't the normal result of such a case, like any contract case, where you have language, even if it was the word “ any ”, it doesn't mean wheat grown on Mars, okay?
And so you'd say -- if it says you can recover anything, that “ any expense ”, it means, yes, you can recover that which was paid, but not money that you had to pay to get the amount paid.
Neal Kumar Katyal: --Justice Breyer, we absolutely agree that a plan could be written in order to embrace--
Justice Stephen G. Breyer: But this is a plan that they wrote and that US Air--
Neal Kumar Katyal: --but I think it would be highly unusual for this Court, indeed, I think, procedurally unavailable for this Court to--
Justice Antonin Scalia: Counsel, I guess your opponent could have raised that point.
Neal Kumar Katyal: --Absolutely.
Justice Antonin Scalia: And didn't raise it.
Neal Kumar Katyal: Absolutely.
Justice Antonin Scalia: And we took this case on the assumption that there is an issue of law involved--
Justice Stephen G. Breyer: --All right.
So I can--
Justice Antonin Scalia: --not -- not on the assumption--
Justice Stephen G. Breyer: --What is the issue of law?
The issue of law is what happens if we have a plan which says Joe Smith, my employee, if you have to spend $90,000 to get back 92,000, you have to give us back all 92, even though you only have 2 in pocket.
And we are supposed to assume that's what the contract said.
Is that right?
And then -- and then we say, now, can you override that with the principle of equity; is that the issue you see before us?
Neal Kumar Katyal: So, again, we're not overriding with the principle of equity.
We're saying that the rules of equity, if they have in the plan an abrogation of the common fund, as that is here, in the way this case comes to the Court, then that is what settles the question.
Now, you could have a Sereboff plan, which says the reverse, which says, we're going to have a common fund doctrine, and avoid that problem at the outset.
The parties evaluate the valuation of the transfer of assets at the outset, and that's what controls.
And if they want to buy into the common fund, as this Court said in Sereboff, that's absolutely enforceable.
And so it's not a contract around, Justice Sotomayor, doctrines of equity.
It's simply a reflection of the general rule that, in equity, if -- when we're talking about equitable liens by agreement, it is the agreement that controls, that starts the ball game.
Chief Justice John G. Roberts: Was the plan available to the employee at any time before this litigation?
Neal Kumar Katyal: Sure.
If they had asked for the plan, it could have been provided to them.
Chief Justice John G. Roberts: Are they -- are they advised that they can ask for the plan?
Neal Kumar Katyal: --I'm not quite sure about that.
I will look into that and try and get you an answer on that.
Justice Sonia Sotomayor: I thought it took most of the litigation for the plan to be provided.
Neal Kumar Katyal: Justice Sotomayor, at the outset, they asked for the summary plan description or the plan.
The summary plan description was provided.
Justice Antonin Scalia: --You say, “ they ”.
I assume you mean their lawyer.
Neal Kumar Katyal: Their lawyer.
Justice Antonin Scalia: This is not, you know, an ignorant layman who knows nothing about the law.
Neal Kumar Katyal: That's correct.
Justice Antonin Scalia: The lawyer, you say, did not ask for the plan.
Neal Kumar Katyal: And -- and I should say, the minute that US Air found out that a tort -- a plaintiff's lawyer was hired, they sent a letter to that lawyer saying, we assert a right of reimbursement.
Justice Elena Kagan: But, Mr. Katyal, could I ask you about the legal argument that you are making, the distinction you are making between reimbursement agreements and subrogation agreements, which you think -- seem to think is critical here.
And, you know, once you put it in one box rather than another, some result follows, different results follow.
Neal Kumar Katyal: Yes.
Justice Elena Kagan: So -- so how do you know whether you have a reimbursement agreement or a subrogation agreement and what follows from that categorization?
Neal Kumar Katyal: So, Justice Kagan, there are two very distinct rights.
Subrogation is the right to stand in someone else's shoes.
And so the insured -- the plan says, we are going to inherit all of the benefits and burdens of the insured in bringing an action.
It's a vicarious -- it's a kind of vicarious notion.
Reimbursement's an entirely different concept.
It's the idea that, look, we're not obligated to give you this money because we're not at fault in this accident, but we're going to essentially advance it to you, but you've got to reimburse us for it.
Justice Elena Kagan: So if this were a subrogation agreement, what would follow?
Neal Kumar Katyal: --So if it were a subrogation agreement, I think my friend's case on the other side gets a lot stronger because there are subrogation cases that -- that have different rules.
But when you talk about reimbursement, which is not the right to stand in someone's shoes, but a first priority, absolute agreement between the parties to get money, it's just simply a dispute about that money.
And you can't--
Justice Elena Kagan: So if your friend's argument would get a lot stronger if it were a subrogation agreement, how do we tell that this agreement is a reimbursement agreement rather than -- are we supposed to just take that because that's the way the Court -- it's come to us, or -- or is there an argument about why there is a reimbursement?
Neal Kumar Katyal: --There is an argument, and, indeed, all I think you have to do, Justice Kagan, is look at what happened in Sereboff, because in Sereboff you had essentially the same thing, a plan that had both a reimbursement provision and a subrogation provision.
And the -- the beneficiaries in Sereboff were saying, hey, this is subrogation, this is subrogation.
And the language that I've read to Justice Ginsburg at page 368, as well as earlier language in the opinion, said, no, this is actually a claim for an equitable lien by agreement that does not sound in subrogation, that sounds in reimbursement.
And so all you have to do here is precisely what this Court unanimously did in Sereboff, which is to say, look at the nature of the action, is this an action that seeks personal liability, does it specify a particular fund, the typical hallmarks of an action for an equitable lien by agreement; and, if those are present, as they are here, that is enough.
Justice Samuel Alito: Are you in effect asking for a windfall because Mr. McCutchen and his attorneys didn't understand what ERISA means in this context?
If they understood that things would work out the way you think they should work out, and they saw that the limits of the insurance policies against which they could collect were $110,000, wouldn't they have realized that this was a suit that wasn't worth pursuing?
There would be no point in doing it because nothing would be -- nothing would be gained for Mr. McCutchen or for the attorneys.
Neal Kumar Katyal: Not at all, Justice Alito.
One, the rule on ERISA -- and this rule has been the rule in the Third Circuit since Federal Express v. Ryan in 1996.
This is a long-established rule -- if an attorney comes and takes a case knowing that there is a -- an ERISA plan at stake, seems to me they're at least on inquiry notice that there would be some sort of--
Justice Samuel Alito: Well, perhaps they should have realized it; but, if they realized it, they have no incentive to pursue this litigation or to pursue the tort decision--
Neal Kumar Katyal: --Not so.
This is both in our brief, as well as the Blue Cross amicus brief.
What usually happens in these situations is that an agreement is struck in advance, before the lawsuit is filed, between the plan and the plaintiff's attorney to reach some accommodation.
After all, the plan has an incentive in some sort of action being brought--
Justice Sonia Sotomayor: In this case, he wrote -- the attorney wrote to you any number of times, and finally said, look, unless you come and tell me what your position is, I'm going to go forward.
So what are attorneys supposed to do in those situations, just drop the lawsuit?
Neal Kumar Katyal: --Your Honor, I don't think that quite is an accurate statement of the facts.
That was precisely what the district court evaluated on the summary judgment motion.
They made a big issue about our failure to communicate and so on.
The district court rejected all of those arguments--
Justice Sonia Sotomayor: Rejected it because it had nothing to do with the agreement, but it didn't reject them as a factual matter, that you were contacted.
Neal Kumar Katyal: --I do -- I do think that there were lots -- and this is in Joint Appendix, pages 50 to 64 -- lots of communications between the two.
Now, here's -- there was one place where there wasn't communication, which was they went and negotiated a secret settlement of $100,000.
And when US Air found out about it--
Justice Sonia Sotomayor: Counsel, were they supposed to -- if the insurance limit was $100,000, are you suggesting that that was a bad faith settlement?
Neal Kumar Katyal: --I am suggesting that we didn't have the opportunity, Justice Sotomayor, that we typically do in the lion's share of cases, as I was saying to Justice Alito, where you work these things out in agreement -- in advance with clear lines of communication.
Justice Anthony Kennedy: Justice Kagan's question had two parts.
She said, tell me about the two boxes, subrogation and reimbursement.
I think there is quite a bit to your argument that this is not subrogation.
The plan is rather confusingly drafted.
The plan calls it subrogation.
I don't think it really means subrogation.
If it's not subrogation, Justice Kagan's question was, what then?
The -- the common fund rule still does not apply?
Neal Kumar Katyal: Because the common fund rule -- and this we are in agreement on, the parties -- the common fund rule is a doctrine based in unjust enrichment.
This is what they say at page 26.
This is what all the courts say common fund is.
And, indeed, up until six months ago, seven different circuit courts had evaluated this question of whether the agreement can trump the common fund doctrine.
21 of 21 circuit court judges all said it did.
Justice Anthony Kennedy: But you are still in equity pursuant to the statute.
Neal Kumar Katyal: Yes.
Justice Anthony Kennedy: And are you saying that there is no discretion in the equitable decrees that the judge made?
Neal Kumar Katyal: That is precisely right.
The agreement sets the evaluation of the parties.
That's what the State Farm case says, what their own treatise says, what the Arkansas Supreme Court says.
Justice Antonin Scalia: That's not unusual.
The motto is equity follows the law.
Doesn't -- doesn't that usually -- isn't that usually the case?
Neal Kumar Katyal: That -- that is correct.
Justice Antonin Scalia: Where there is a legal right, equity cannot overcome it.
Neal Kumar Katyal: That is correct.
And as the Solicitor General says at page 17, quoting the Restatement,
"A valid contract defines the obligations of parties as to matters within its scope displacing to that extent any inquiry into unjust enrichment. "
If I could reserve the balance of my time.
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF JOSEPH R. PALMORE, FOR UNITED STATES, AS AMICUS CURIAE, IN SUPPORT OF NEITHER PARTY
Joseph R. Palmore: Thank you, Mr. Chief Justice, and may it please the Court:
As this Court's cases recognize, Section 502(a)(3) invokes the equitable powers of the district court.
All of the remedial powers of a court in equity are available that -- under Section 502(a)(3) that would have been available when an analogous claim was brought.
Justice Antonin Scalia: Equitable powers to enforce the agreement.
Joseph R. Palmore: Yes.
And so we agree with Mr. Katyal in what we've characterized as the first question presented, that we think is essentially decided by this Court's case in Sereboff.
At equity, when there was a -- an equitable lien by agreement, that agreement was generally enforceable according to its terms.
It was like a mortgage, is the classic case, and the mortgage gave a security interest in land; and, if the debt was not paid off, then the lienholder could -- could foreclose on that land.
Justice Elena Kagan: Mr. Palmore, do you agree with Mr. Katyal's view of this distinction between subjugation -- subrogation agreements and reimbursement agreements and which this agreement is?
Joseph R. Palmore: I think that's a -- the -- there is certainly a distinction, and the Couch insurance treatise talks about the distinction.
But the Couch insurance treatise also explains that the terms are often used interchangeably in a confusing way.
So I don't think that the bright line that Mr. Katyal seeks to establish between subrogation and reimbursement is necessarily reflected in all the cases and all the--
Justice Antonin Scalia: Well, I think you can say that about any legal rule, that some courts bollox them up.
I mean, that means the rule doesn't exist, because it's sometimes used in a confusing way?
Joseph R. Palmore: --No, I think it's just the fact that the courts do use these terms interchangeably.
Justice Antonin Scalia: What's the rule?
What's the rule?
Do you acknowledge that that is the rule?
Joseph R. Palmore: We acknowledge that when there is a -- when there is a contractual plan-based reimbursement provision like this, it is enforceable as an equitable lien by agreement, in the same way that an equitable lien by agreement would have been--
Justice Elena Kagan: Well, but I think Mr. Katyal said that if this were a subrogation agreement, Mr. McCutchen would have a much better argument because a different set of rules would apply.
And so that makes this categorization question quite meaningful.
Now, you could say, well, we don't see it as all that meaningful.
We think, no matter what you call this agreement, the same rules apply.
Or you could say, yes, different rules apply with respect to these two different kinds of agreements, and your job is to figure out which kind of agreement this is.
Joseph R. Palmore: --Right.
We think -- as the case comes to the Court, this is a case for reimbursement.
This is just like Sereboff, and this is a reimbursement agreement.
What -- what adds to the confusion is that -- and if you look at more modern insurance decisions, they're bringing in all kinds of concepts from State law, from insurance law, from public policy of the State.
They don't necessarily reflect what would have happened in a court in equity at the time of the divided bench, and that's the import--
Justice Stephen G. Breyer: But that's my exact question.
I think now what we're being asked to decide is, from your point of view, does the common fund doctrine apply?
I take it, the common fund doctrine says, if this victim here got some money back from the person who caused the accident, that that money goes into a common fund in the sense that those who share in the fund must share as well in the cost of producing the fund.
So if it costs $50,000 to produce $100,000, which is in the fund, that we have to have US Air as well pay part of the cost of producing the fund.
That sounds very fair.
But I hear the argument, fair though it is, we have here an agreement, and in this agreement it says, it's as if it said, and you shall not apply the common fund doctrine or any other equitable doctrine such as he who seeks equity must do equity, etc.
And I think that's the question that's being asked.
And so what is your response to that?
In particular, why do you say the common fund doctrine applies, though the contract says it doesn't, we assume, but all these other equitable doctrines don't apply?
Joseph R. Palmore: --Because we think the equitable doctrines that apply are the equitable doctrines that would have applied at equity.
Justice Stephen G. Breyer: Good.
So now we have 18th century authority which says that in the 18th century, Lord Cooke or someone said that the common fund doctrine applies, but the other doctrines don't.
And the -- and the name and citation to that authority is?
Joseph R. Palmore: Well, there is not one authority that is going to give you both -- both answers.
But the equitable lien by agreement cases from the time of equity, as I mentioned before, were typically mortgage cases or a promise to provide future acquired funds to discharge a debt.
And it's clear under those cases that that could be executed, according to its terms.
The unjust enrichment principles that Respondent is invoking were in really a different silo involving equitable restitution.
And this Court in Sereboff said, we are not going to look at equitable restitution principles, we are going to look at equitable lien by agreement cases.
Now, there is a separate line of authority involving the common fund that we talk about in our brief, and, as Mr. Katyal said, it has at times been characterized as an unjust enrichment doctrine, but its roots are different.
Its roots are actually in an analogy to trust law.
If you look back to the principal case that established this, the Greenough case that we talk about in our brief, the Court said that Mr. Vose, who -- the bondholder who had secured a benefit for all the bondholders, had, while not a trustee, had acted the part of a trustee.
And it was a well-settled principle of trust law both then and now that a trustee is entitled to reimbursement for reasonable expenses from the trust itself.
Justice Antonin Scalia: Was there an agreement that contradicted that?
Joseph R. Palmore: There was no agreement in Greenough that contradicted that.
Justice Antonin Scalia: But we have an agreement here, so how does -- how does that line of authority apply?
Because we have an agreement which says that the insurance company gets all the money.
So you either say that that agreement can be overcome by equity, or else you say the agreement prevails.
Joseph R. Palmore: There are two answers, Justice Scalia.
One is that a plan can't add to or subtract from the powers of the court in equity under Section 502(a)(3).
A plan couldn't disclaim a claimant's ability to get an injunction--
Justice Antonin Scalia: But it only has the powers to enforce the agreement.
Joseph R. Palmore: --The powers to enforce--
Justice Antonin Scalia: There are various equitable powers, and it can use various of them to enforce the agreement.
Joseph R. Palmore: --But we don't think--
Justice Antonin Scalia: That's quite different from rewriting the agreement, which is what you are using it for here.
Joseph R. Palmore: --No, we are saying that Section 502(a)(3) takes the settled powers of the court in equity as it finds them.
And the plan can't divest the Court of those powers, it can't add to those powers like this Court held in Great-West; it also can't take away from them.
But if I could go to an equity answer, because I think this is important--
Justice Antonin Scalia: Excuse me.
Do you really think that if -- if an equity court finds the agreement to be unfair, it can say, he who seeks equity must do equity, and rewrite the agreement so that it's fairer?
Joseph R. Palmore: --Not on general unfairness grounds, but it was a settled principle at trust law, and remember, Greenough based the common fund doctrine on trust law that if, for instance, a trust document had said, the trustee shall take his expenses from the trust corpus, not from the income -- or vice-versa, says the trustee shall take his expenses from the income but not from the trust corpus -- if that proved unworkable or unfair and the trustee couldn't discharge his obligations to maintain the trust, the court of equity had broad reformation powers and was not bound by that trust document.
Chief Justice John G. Roberts: Counsel, the position that the United States is advancing today is different from the position that the United States previously advanced.
You make their point in footnote 9 of your brief.
You say that in prior case, the secretary of labor took this position.
And then you say that, upon further reflection, the secretary is now of the view -- that is not the reason.
It wasn't further reflection.
We have a new secretary now under a new administration, right?
Joseph R. Palmore: We do have a new secretary under a new administration.
Chief Justice John G. Roberts: It would be more candid for your office to tell us when there is a change in position that it's not based on further reflection of the secretary.
It's not that the secretary is now of the view -- there has been a change.
We are seeing a lot of that lately.
It's perfectly fine if you want to change your position, but don't tell us it's because the secretary has reviewed the matter further, the secretary is now of the view.
Tell us it's because there is a new secretary.
Joseph R. Palmore: --With respect, Mr. Chief Justice, the law has changed since that brief was filed nearly ten years ago in the Court's review.
Chief Justice John G. Roberts: Then tell us the law has changed.
Don't say the secretary is now of the view.
It's not the same person.
You cite the prior secretary by name, and then you say, the secretary is now of the view.
I found that a little disingenuous.
Joseph R. Palmore: Well, I apologize for that, Your Honor, but we do cite in that footnote the Amara case, and that is a key element to our position here.
Because Amara said that section 502(a)(3) incorporates the traditional powers of the court at equity.
And it talked about not only the ability to issue an injunction, but the ability to provide for a surcharge remedy, the ability to reform contracts--
Justice Sonia Sotomayor: We--
Justice Antonin Scalia: We never doubted that before.
Was it thought before that all the equitable powers did not exist under ERISA?
Joseph R. Palmore: --These cases weren't litigated in the way they were now before -- before Sereboff--
Justice Antonin Scalia: It seems to be self-evident that court had all equitable powers.
That's not a change in the law.
It's just a restatement of the obvious.
Joseph R. Palmore: --And we think the Court has all equitable powers and a plan term can't divest the court of those equitable powers, so among those equitable powers was the ability to enforce an equitable lien by agreement without looking at inapplicable unjust enrichment--
Justice Sonia Sotomayor: --Or not to enforce it.
Meaning the equity is to enforce it or to stay your hand.
And so the Court could decide not to reach into the pocket of the plan participant to pay back money that the lawyer has.
Joseph R. Palmore: --Well, we do agree with respect to the common fund doctrine, and we think that, to the extent this Court is willing to look at the -- at the -- the purposes of ERISA, that the position that we've advanced strikes the right balance and in particular it avoids the negative recovery scenario that is a particularly harsh result of Petitioner's position.
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF MATTHEW W.H. WESSLER ON BEHALF OF THE RESPONDENTS
Matthew W.H. Wessler: Mr. Chief Justice, and may it please the Court:
Reimbursement claims that are based on an express subrogation agreement are subject to equitable principles of subrogation.
In equity, these claims were governed, according to the same principles that governed every other type of subrogation.
Justice Antonin Scalia: Your opponent says this is not a subrogation agreement, so that argument goes nowhere.
He would concede that point.
You have to tell us why this is a subrogation agreement, even though you conceded below that it isn't.
Matthew W.H. Wessler: Your Honor, it is a subrogation agreement.
The claim, however, that Petitioners have pursued here, is a reimbursement claim.
And -- but it's based on an express subrogation clause.
And in equity, reimbursement claims, which to be clear, are distinct from subrogation claims because they involve a suit directly against the insured as opposed to against the tortfeasor, are governed by the same principles of subrogation that equity treated -- equity used to apply to all claims that involved an insurer who is seeking to recover money from either an insured or a tortfeasor.
And so we concede, absolutely, Your Honor, that the claim is one for reimbursement for moneys recovered out of a fund obtained by the insured.
But it's based on an expressed subrogation--
Justice Antonin Scalia: That's not what I say you've conceded.
That's a common fund doctrine.
Your opponent denies that the common fund doctrine applies.
And it says this is an equitable lien by agreement, so that the common fund doctrine doesn't apply.
Now, you say it is not an equitable lien by agreement, is that your position?
Matthew W.H. Wessler: --No, Your Honor.
We -- to be clear, it is an equitable lien by agreement, but it arises within the doctrine of subrogation, which is as Couch, and Palmer, and other treatises explain, is an umbrella term that is used to describe all of the rights and rules that govern claims by insurers for money back after they've paid it out under a policy.
Now, the form of the action in this case is a -- is a claim for reimbursement out of a fund, but the mere fact that that's the form of the action, which in Sereboff this Court called an equitable lien by agreement, does not alter the underlying rule that equity courts in the days of the divided bench would have applied to the claim.
Justice Elena Kagan: But doesn't Sereboff suggest not?
I mean, I realize that Sereboff has this footnote, but if you read the text in Sereboff, it says
"these affirmative defenses that would arise. "
in a normal subrogation context are beside the point.
So how are they not the beside the point?
Matthew W.H. Wessler: They are not beside the point for one reason, and let me -- let me explain why.
What the Court actually said in Sereboff was that the parcel of equitable defenses accompanying a free-standing claim or free-standing action for equitable subrogation are beside the point.
A free-standing action for equitable subrogation is not one based on an agreement.
It's an implied claim, a claim for subrogation or reimbursement based on the mere fact that the insurer has paid the money.
Justice Elena Kagan: So is that true that in Sereboff there was no agreement?
Matthew W.H. Wessler: There was, but what this Court -- there was absolutely an agreement just as there is an agreement in this case.
What the -- the distinction the Court drew in Sereboff was it said that whatever principles apply to free-standing claims are beside the point, because -- precisely because the claim was based on an agreement.
That is absolutely correct.
And it's perfectly consistent with our position, because we believe that the principles in equity that governed exactly the kinds of claims that were at issue in Sereboff and are at issue here, reimbursement claims based on an express agreement, are in fact governed by the same principles of unjust enrichment.
Justice Elena Kagan: I guess I don't understand that, because it seems to me that when Sereboff said it was beside the point, they were refuting the argument that the insured party was making, that the insured party was saying, hey, look, we have these great defenses.
And you are saying they had an agreement but they also said they have these great defenses, and the Court said, too bad, those defenses don't work for you here.
Matthew W.H. Wessler: The Court -- the -- the beneficiary, Your Honor, in Sereboff, argued that the defenses that applied to a -- a freestanding or implied claim for equitable subrogation should control the -- the measure of relief available in the case.
They said -- it -- the contract doesn't matter.
The agreement makes no difference.
What the plan is trying to obtain here is a pure, freestanding claim for subrogation.
And -- and look at all these great rules that apply to that -- to that kind of claim.
And the Court said, absolutely correctly, in Sereboff, whatever those principles are doesn't matter because this is a claim based on an agreement.
But what our view in this case is--
Justice Sonia Sotomayor: So what -- what's the difference between the two?
Meaning, I take your argument to be that the Court was right before that freestanding subrogation claims have one set of remedies or rights, and subrogation, by agreement, have another.
So what do you see as the differences between the two?
Matthew W.H. Wessler: --When it comes to the rules that govern relief, there is no difference.
The same principle of unjust enrichment controls, and it limits an insurer to recovering out of the fund only--
Justice Sonia Sotomayor: So was the Court in an exercise of futility in writing what it did in Sereboff?
Matthew W.H. Wessler: --Not so, Your Honor.
It did not reach the question in Sereboff of what rules apply to -- to reimbursement claims based on express agreement.
That was footnote 2.
The Court said all we're holding in Sereboff is this is a--
Justice Sonia Sotomayor: Counsel, I understand the argument.
It's a bit unsettling that you've got two kinds of rights, one implied and one express, and there's no difference between the two?
You -- you've got to give them a little bit more body to have a persuasive argument.
Matthew W.H. Wessler: --Your Honor, in equity, that was the rule.
And I'll point this Court's attention to the leading treatise on equity.
It's Palmer's treatise cited by this Court in Sereboff and in Great West.
And what Palmer says, and he -- he discusses precisely this claim on pages 473 and 474 of his treatise, and it's cited on page 21 of our brief.
And he says that,
"The same principle of unjust enrichment controls claims for reimbursement arising out of an express agreement. "
And I'm quoting here--
Justice Sonia Sotomayor: Isn't there another line after that, that says something--
Matthew W.H. Wessler: --Yes, I'm about to quote that.
And he says that that principle, quote,
"should serve to limit the effectiveness of contract provisions which in terms provide for reimbursement out of the insured's tort recovery without regard to whether or the extent to which that recovery includes medical expense. "
Chief Justice John G. Roberts: Is this the part -- I might be mixing this up with something else, but is this the part where he says, unfortunately, the courts don't agree with that?
Matthew W.H. Wessler: He -- he -- he identifies two decisions -- that -- you're correct, Your Honor -- he identifies two decisions which did something contrary to that rule.
But, in his view, that is the rule that governs these claims.
Justice Ruth Bader Ginsburg: Let's go back to what the -- the simple argument.
We have an agreement here, and the plan is asking for what the agreement gives it.
Why is the plan unjustly enriched by receiving exactly what the plan entitles it to receive?
Matthew W.H. Wessler: Because, Your Honor, these -- these insurance reimbursement cases arose in a very different context from most other equitable lien by agreement cases.
And the core difference in -- between these cases and all 22 or -- or more of the cases that the Petitioner cites is that they involve a third party who has caused the loss both to the insurer and the insured.
And that third party, the tortfeasor, in these reimbursement cases is not the defendant.
And so, in two-party equitable lien by agreement cases, which are -- all of the cases that Petitioner cites involve two-party cases in which the defendant is also the wrongdoer, is the person who is culpable and who has caused the -- the Plaintiff's loss -- in those cases, when courts awarded relief, they awarded relief that was consistent with the defendant's unjust enrichment, but was also co-extensive with or consistent with the loss under the contract.
In these three-party cases, however, because the defendant, who is -- who is a beneficiary, not -- not the tortfeasor, did not actually trigger the loss, courts developed in equity a different set of rules to apply to -- to measure the relief available under the claim.
And what they said was, where there is a fund that is insufficient, where it cannot cover all of the losses suffered by all of the parties, that -- that all of the parties must share equally with -- of the loss.
And the Palmer -- Palmer itself has an entire chapter devoted to third-party problems.
Justice Stephen G. Breyer: Why -- why is it so unfair?
I've been putting it in a way that looks unfair, which favors your side.
But US Air or the equivalent says, now, here is the deal, we'll pay your medical expenses.
And now, if somebody causes those expenses, you come to us, and we decide whether we want to sue and get our expenses back, and any extra money we give to you, and we pay our attorneys' fees extra.
They don't count against the fund.
And if our lawyers tell us it isn't worth it, you're free to sue; but, I'll tell you what, your lawyer is going to be at the end of the queue.
We're first, then comes your lawyer, and anything left over goes to you.
Now, if you can find a lawyer that takes it on those conditions, good for you.
But he might, because he might think he's going to get -- but our lawyers have already told us it's not going to work, so that's the situation.
Now, what's -- I'm not -- I think US Air's point would be, well, what's unfair about that?
That's -- that makes sure we get our money back.
That's what we want to do.
And you're free to sue; it's just your lawyer who's going to come at the end of the queue, okay?
What's -- why is that unfair?
Matthew W.H. Wessler: --Your Honor, it's unfair because, in equity, parties could not defeat the rules that typically apply.
Now, if this were a legal case, and that were a legal claim, there's nothing unfair about that.
The parties can structure their contracts or agreements as they see fit.
But the fact is that we are talking about the rules that equity applied in these situations.
Justice Antonin Scalia: So whenever you have a contract that explicitly, although, you know, nowadays when the merged bars, I suppose, you wouldn't even have to say it, but let's assume it explicitly says that rights under this contract can be enforced in law or -- at law or in equity.
Whenever -- whenever you have a contract like that, it's going to be up to the court of equity to decide whether it's fair?
Matthew W.H. Wessler: No, Your Honor.
I -- I don't think that's right.
And I would point the Court to -- to its decision in McKee in 1935, in which it drew a distinction between a claim in equity that was a legal claim based on a contract, which could happen, and a claim in equity that was a, quote, “ purely equitable claim ” based on the contract.
Justice Antonin Scalia: Why isn't this a legal claim?
It -- it's -- it's a promise made in a contract.
Why is that not a legal claim?
To be sure, the contract says that -- that, you know, all equitable remedies are available to enforce that claim.
But why is it an equitable claim, not a legal claim?
Matthew W.H. Wessler: It -- it could be either, Your Honor.
And we've cited -- cited to this Court cases in -- in the days of the divided bench in which a party could have sought legal relief for breach for this exact kind of claim, but there was also a remedy that a party could seek in equity.
But in order to do that, in order to -- to enter equity's doors on this reimbursement theory, it -- it had to agree to allow other parties their correlative rights in equity, and it also had to agree not to override or defeat the -- the rules in equity that typically would--
Justice Ruth Bader Ginsburg: Well, couldn't that party simply say, I want to go to the other side of the court?
You just made a distinction between the remedy at law and at equity.
This is the plan, and if the plan is told, well, if you go to equity, you get all these extra things, you could say, I'm asserting my rights at law.
Matthew W.H. Wessler: --No, Your Honor.
The plan is in a bind here.
And we know this from Sereboff and Great West and Mertens.
They cannot seek legal relief under this contract.
The only -- the only provision in ERISA's enforcement section that allows that is section 502(a)(1)(b), and it says a party has rights to -- has the right to enforce the terms of the plan; but -- but fiduciaries like Petitioner are not allowed to pursue relief under that provision, so all they get is purely equitable relief under 502(a)(3).
Justice Anthony Kennedy: The general rule in equity was that the equity court would not give a specific performance decree to pay a certain amount of money was the general rule.
Were there exceptions?
Matthew W.H. Wessler: Your Honor--
Justice Anthony Kennedy: And -- and if so, do those exceptions bear on this case?
Matthew W.H. Wessler: --And there were -- there were exceptions, but we don't view this case as a specific performance case.
And I'm not sure Petitioner--
Justice Anthony Kennedy: We -- you don't view the case as?
Matthew W.H. Wessler: --As a specific performance case.
That was a specific type of -- of remedy.
The remedy here that's being sought is an equitable lien by agreement, but -- but in our view, when an insurer sought to enforce through an equitable lien by agreement a claim or a lien on a fund, it must agree to take that relief subject to the way equity would have treated the claim.
And what Palmer and what Couch and -- and what the cases we've cited say is that even for those reimbursement claims that are based or arise on an express agreement, that the relief available is limited in two concrete ways.
The -- the insurer could not get more out of the fund than its share of the fund that accounted for the medical expenses it paid, and it must have agreed to reduce proportionately for an amount of fees and costs.
Justice Stephen G. Breyer: Enter best case.
What is your best case?
I'd love to find it.
There's a case that says something like this.
Matthew W.H. Wessler: The Svea case, Your Honor, which is--
Justice Stephen G. Breyer: Well -- well, let me tell you what I'm thinking of.
The -- there is a contract all written down.
They forgot to put a seal on it.
They forgot to put a seal on it, so I guess it's now 1463 or some year like that.
So they go into equity.
And now, they are in equity.
And the plaintiff says, judge, I want you to enforce this contract.
He says, I'm a judge in equity.
He says, I know, but we've agreed, and you enforce it in equity.
The contract says give Smith all the wheat, and equity says, you know, there are other people who would like some of this wheat, too, so we are not going to follow the contract.
We are going to modify the contract according to equitable principles, which, as you say, they can do.
And the other side says, no, they wouldn't.
They'd follow the contract.
They are just in equity because they forgot the seal.
What is your best case to show they did, indeed, modify it with the Common Fund Doctrine or some other doctrine?
I want to be sure to read it with a magnifying glass.
Matthew W.H. Wessler: --Well, Your Honor, to be clear, there is not a single equitable lien case that -- that Petitioners have found in which a court has--
Justice Stephen G. Breyer: I know, but I didn't ask you about what they found.
I was asking what you found.
Matthew W.H. Wessler: --So -- so, Your Honor, the Svea case, is -- is, I think, our best example.
And in that case, the insurer had a subrogation agreement which authorized it to recover -- authorized recovery to, quote, “ the extent of its payment ” out of, quote,
"all rights of recovery of the insured. "
And in that case, there was an underlying settlement that the insured reached with the tortfeasor, the wrongdoer.
And after that occurred, the insurer did not participate in that underlying proceeding at all.
And after that occurred, the insurer then directly sued the insured.
This is exactly the kind of case we're talking about here, seeking recovery out of the fund.
And they based that claim on their -- on their express subrogation agreement.
And they said, we paid approximately $3,000.
You recovered something like $9,000.
We should get $3,000 back.
And the court there said no, because the fund was insufficient to cover all of the losses -- the -- the insured did not recover for all of its losses, several other claimants did not recover for all of their losses -- and the Court said that because the fund was insufficient, the -- the insurer was limited to recovering -- and I'm quoting here --
"no more than its proportion of the amount recovered after deducting costs and fees. "
And so they applied both the double recovery cap that we believe applied in every single case in equity in which an insurer--
Justice Antonin Scalia: What case is this?
Matthew W.H. Wessler: --This is the Svea case, Your Honor.
Justice Antonin Scalia: From what court, what -- what year?
Matthew W.H. Wessler: The highest court in Maryland, I believe from 1901.
Justice Elena Kagan: Mr. Wessler, would it be fair to say -- I mean, we're in this unusual position because we're supposed to be looking back to before the 1930s sometime.
Would it be fair to say that we just don't have very many cases, and Mr. Katyal doesn't have any, and you don't have any, that raise this question that where somebody walks into an equity court with a contract, and we try to figure out whether the equity court is going to use these unjust enrichment defenses?
Would it be fair to say that we just don't know?
Matthew W.H. Wessler: I -- I think -- I think that it's fair to say that this did not arise that frequently in courts of equity.
Justice Elena Kagan: Why didn't it?
Matthew W.H. Wessler: Be -- for -- for several reasons, Your Honor.
First, most of these claims arose simply as freestanding or implied claims.
So there was not -- there was no need for an insurer to include in its insurance policy an expressed subrogation agreement.
However, that -- that changed approximately around the turn -- the mid-20th century when medical insurance started to become an increasing commodity.
When that occurred, most States had a -- a prohibition on the assignment of personal injury claims.
And so what insurers began to do to get around that prohibition was to insert in their -- in their policies an express clause allowing them to obtain reimbursement from the insured in the event that the insured recovered money that it had paid.
Now, there is another reason in this case -- or in these ERISA cases -- why these agreements need to be in the plan, and that's because section 502(a)(3) itself does not allow for a plan, like Petitioner, to obtain a general right to equitable relief.
All that the Petitioner can -- can seek here is equitable -- appropriate equitable relief to enforce the terms of its plan.
And so in the absence of an expressed provision, like a subrogation clause, it would not be entitled to pursue a -- a general right to subrogation.
It's a term -- that back-end reference is a -- is a term of limitation that limits the types of claims that petitioner can bring in these cases.
Chief Justice John G. Roberts: Counsel, can -- I want to give you an opportunity to respond to the argument that you've waived, the -- the -- your argument based on the distinction between the summary of the plan and the plan.
And there are two things that concern me about that, in particular.
The summary of the plan, which you've had all the time, says, on page 1,
"This is only a summary. "
"Complete plan details are contained in a legal plan document. "
"If there is any difference between the information in the summary and the legal plan, the legal plan document -- the legal plan document will govern. "
So when you had the summary, you were on notice that if there were any difference between it and the plan, the plan would govern.
You received a copy of the plan in June of 2012.
And as late as August 29th of 2012, two and a half months afterward, you filed a Joint Appendix that didn't -- didn't contain the provision that you say now governs.
So why shouldn't you be held to have waived that?
The first time we found out about that was in your red brief that was filed -- June, July, August, September -- three months -- October -- four months after you had the plan.
So didn't you waive it?
Matthew W.H. Wessler: Well, I -- I don't think we waived it, Your Honor.
It's in our opening brief on the merits to this Court, and--
Chief Justice John G. Roberts: Which was four months after you had the plan, and the plan was lodged with us last week for the first time.
Matthew W.H. Wessler: --That's correct, Your Honor.
In our view -- and -- and I think I need to be clear about this.
I mean, the -- the fact that the plan contains a different set of rights than -- than the SPD, to us, is meaningful in -- in its -- in its effect that it will have on this case when this -- if and when this Court remands because -- because, in our view, the rights are different.
However, I -- it doesn't change the underlying nature of our argument, which is that even the strong form argument that Petitioners have made here, which is that, on the SPD, it can defeat the -- the rules that typically would have applied, that equity would not have allowed that.
Chief Justice John G. Roberts: The problem is that the district court interpreted the plan as precluding the claim you're making here.
And your argument that that's not true is based not on the summary of the plan, but on the plan itself.
Matthew W.H. Wessler: --That--
Chief Justice John G. Roberts: And what the district court does is it defers to the administrator's interpretation of the plan.
So the district court found that the administrator's interpretation was not arbitrary and capricious.
So what your friend is arguing is that, well, you are kind of stuck with the district court interpretation, and you can't, at the last minute, argue that it shouldn't control because of some other document.
Matthew W.H. Wessler: --Well -- well, we think we do have the right to argue that on remand, Your Honor.
And -- and this Court's decision in Cigna only -- only arose in this case after the -- the briefs were complete to the Third Circuit.
And so it's -- I -- I think Cigna has changed the law to the extent that all parties are now on notice and know that the plan document will trump any contrary language--
Chief Justice John G. Roberts: Well, no, Cigna didn't tell you that.
The plan -- the summary told you that.
"Complete plan details are in the legal plan. "
"If there is any difference between the summary and the plan, the plan controls. "
So you didn't need Cigna to tell you that.
Matthew W.H. Wessler: --Well -- well, Your -- Your Honor, I mean, I -- I think that the -- the -- you know, that -- for us, that's an issue on remand.
We're comfortable that our arguments in this case control even -- even as it relates to the actual language in the SPD, and that -- and that whatever differences between the SPD and the plan actually are don't necessarily change the rules that govern when a -- when a party in equity sought this kind of reimbursement relief directly from -- from an insured.
I'd like, just -- just for the last minute or so, to discuss the common fund rule because I do think it applies as a separate and distinct rule, regardless of how this Court interprets the agreement as governing the rights between Mr. McCutchen, the beneficiary, and the plan.
And I'd just like to point out that this Court in Pettus made clear that the Common Fund Doctrine confers a separate lien on the attorney.
And so whatever the agreement control between the beneficiary and the plan has, it cannot defeat the rights that the attorney has, as a separate matter, to come into court and invoke its own lien on the fund as a first priority lien over the money.
And -- and I -- and I'd just like to point out that Petitioners have not responded to that argument.
Nowhere in their reply brief did they explain why their theory would allow them to defeat the rights of a third-party defendant in this case, Mr. McCutchen's lawyers, who have their own separate right to the lien.
And -- and none of their equitable lien cases, Your Honor, involve any kind of common fund whatsoever.
So they say precisely nothing about the rules that would have applied in equity to an attorney's attempt to -- to take their proportion out of the fund before it was distributed to any of the parties.
Justice Ruth Bader Ginsburg: I thought you were discussing the common fund would be the allocation between McCutchen and the plan, but now you seem to be talking only about the attorney's right to come in first.
Matthew W.H. Wessler: The common fund, Your Honor, applies either to deduct -- either as a deduction off the -- Your Honor, may I -- may I finish answering the question?
Chief Justice John G. Roberts: Sure.
Matthew W.H. Wessler: As a deduction out of the entire fund for the attorney's lien, or it can be applied to reduce proportionately each of the claimant's claims to that fund.
And in this case, it should be applied to reduce Petitioner's claim on the fund, irrespective of McCutchen's own claim.
Thank you, Your Honor.
Chief Justice John G. Roberts: Thank you, counsel.
Mr. Katyal, you have 4 minutes remaining.
REBUTTAL ARGUMENT OF NEAL KUMAR KATYAL ON BEHALF OF THE PETITIONER
Neal Kumar Katyal: Thank you.
I'd like to begin where Mr. Wessler left off, with the common fund, and make three quick points.
The first is that both equity law and ERISA law point in the same direction.
Justice Scalia is absolutely right, that they have zero cases that say if there's a preexisting agreement that settles the common fund doctrine, that makes it not enforceable.
And Justice Ginsburg's absolutely right to say that when the plan -- the plan is not unjustly enriched to get the money that they are entitled to get under the contract.
The second point I would make is that the Solicitor General says, well, this is now--
Justice Sonia Sotomayor: Put on the back of someone else, meaning--
Neal Kumar Katyal: --I agree.
Justice Sonia Sotomayor: --I may or may not agree that in terms of your split with the participant, the contract might control.
But I still am having trouble with understanding how you can bind a third party like a lawyer, who's done the effort to recover that fund -- more along Justice Breyer's question, which is, not only in -- in all equity, lawyers are entitled, whether by contract or by unjust enrichment principles, to a -- to a percentage of their expenses in recovering something.
Neal Kumar Katyal: Justice Sotomayor, that's precisely what cases like State Farm and the Arkansas case from 1969, the Maryland case from 1931 address, which is that situation.
And the reason is that essentially here, it's a mistake to see this as a third-party case.
This is really a situation created by Mr. McCutchen double-promising the same money to two entities, US Air and to his lawyers.
And so it's essentially a dispute really among two parties, not three.
Now, the Solicitor General says, well, this is rooted in equitable doctrine.
There is no case that they have that says that there's some equitable doctrine that trumps the preexisting agreement.
And, indeed, the case that they cite, the Greenough case, is one that essentially relies on unjust enrichment principles.
Sure, the Court has an equity power when to remedy unjust enrichment.
That is an inherent power of the Court.
We're not disagreeing with that.
What we are saying is that when you have an agreement in advance, that means, per se, there is no unjust enrichment, that they are to use this Court's language in the Sereboff defense that it is beside the point.
Justice Sonia Sotomayor: Counsel, I'm assuming, because ERISA's in place now, that the many State laws that prohibit this kind of agreement where insurance plans are seeking full reimbursement despite an attorney's efforts, that those are void, that those would be enforceable.
Neal Kumar Katyal: That is precisely--
Justice Sonia Sotomayor: --the only one who can fix this problem now is Congress, if they--
Neal Kumar Katyal: --That is correct.
Justice Sonia Sotomayor: --perceive it as a problem.
Neal Kumar Katyal: Congress in 1974 set it up this way.
And I think that that's an important point, Justice Sotomayor.
For 38 years, this Court has never embraced an idea that Federal common law allows rewriting plan terms.
It would be a very dangerous doctrine to do so; it'd be standardless.
And here is a very vivid example.
They are saying that it is inequitable to have the Federal Blue Cross Blue Shield plan, which governs 4.6 million people, including perhaps members of this Court, which has the exact same provisions as the US Air plan: An abrogation of common fund and a 100 percent reimbursement provision.
And they are saying that that would not be enforceable.
That may create any number of problems for the government, I imagine, when it tries to enforce that.
Justice Stephen G. Breyer: Suppose the expense weren't to pay the lawyer.
Suppose, in order to get the 100,000, you had, for example, to build a model car to demonstrate to the manufacturer who had caused the injury, and it cost you 98,000 to do it.
And they pay you 100,000.
You're saying that -- it wouldn't be unjust to say the 100,000 has to go to -- back to pay US Air?
Neal Kumar Katyal: Justice Breyer, if the agreement settled that in advance, yes, it would not be unjust.
It is the agreement that controls.
Chief Justice John G. Roberts: Thank you, counsel.
The case is submitted.
Chief Justice John G. Roberts: Justice Kagan has our opinion this morning in case 11-1285, U.S. Airways versus McCutchen.
Justice Elena Kagan: James McCutchen received health benefits through a plan established by his employer, US Airways.
When McCutchen was injured in a car accident caused by a negligent driver, US Airways paid his medical bills as the plan provided.
Sometime later, McCutchen sued the other driver and secured a modest recovery.
US Airways demanded reimbursement from that recovery in accordance with the terms of the plan.
So, US Airways filed suit asking for a lien on the funds he had obtained.
US Airways relied on section 502(a)(3) of the Employee Retirement Income Security Act called ERISA, which allows health-plan administrators to seek what's called appropriate equitable relief to enforce their plans.
The question here is whether McCutchen can raise either of two equitable defenses to US Airways suit.
One, would limit US Airways' claim to the amount McCutchen received for medical expenses and let him keep all the money he got for his pain and suffering or other kinds of loss.
The other, which is called the Common Fund Doctrine, would require U.S. Airways at least to pay a fair share of the attorney's fees that McCutchen expended to obtain his recovery.
McCutchen contends that those defenses apply, irrespective of whether US Airways plan, which is a kind of contract provides otherwise.
The Third Circuit agreed.
Today, we vacate that decision in an opinion that has two parts - One, favoring US Airways and the other, McCutchen.
We have held in the past that a health plan administrator can sue to enforce a reimbursement clause in its plan under ERISA's section 502(a)(3).
We reasoned then that such a suit sought equitable relief as the statute requires, because it demands something called an equitable lien by agreement.
That's a -- that's a fancy name for a fairly simple idea.
The beneficiary has made a contract to reimburse the health plan administrator and equity, therefore, imposes a lien on the money he agreed to turn over.
We think it follows that in a suit like this one, the plain terms of the contract controlled.
McCutchen's equitable defenses cannot override them.
As I'd just said, the equitable lien by agreement that US Airways seeks to enforce is a creature of contract.
It arises from the party's agreement and serves to carry it out.
Enforcing that kind of contract based lien, means holding the parties to their mutual promises and conversely, it means declining to apply principles that are at odds with the parties expressed commitments.
So, US Airways is right that the contract governs.
But McCutchen's arguments are not all for nothing.
Even if equitable principles of the kind he raises cannot trump a contract, they may aid in properly construing it.
ERISA plans like other contracts don't always speak clearly.
Sometimes they leave gaps, and when that happens, courts routinely consider background legal principles to fill in the contract.
Here, US Airways plan is silent on how to allocate attorney's fees, and in that circumstance, the Common Fund Doctrine provides the appropriate default rule.
We discussed in the opinion why that is so, how well established the rule is and how strong the basis for it.
Without any sharing of attorney's fees, a health plan administrator would free ride on a beneficiary's efforts getting all its money back while contributing nothing to the costs of obtaining the recovery, and possibly, as in this case, leaving the beneficiary worse off than if he had not sought the recovery in the first instance.
We do not think that a contracting party would expect or intend a plan that does not address attorney's fees to negate the equitable principle preventing this result.
And we, therefore, read US Airways plan to incorporate the common fund doctrine.
Justice Scalia has filed a dissenting opinion in which the Chief Justice and Justices Thomas and Alito joined.